S&P downgrades U.S. credit rating after budget negotiations fall short

Written by  //  August 6, 2011  //  Economy  //  No comments

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The stalemate between Congress and the White House over budget cutbacks precipitated Friday's historic credit ratings downgrade.

The United States’ 94-year excellent credit run ended Friday, when ratings agency Standard & Poor’s lowered the country’s AAA credit to AA+ for the first time, dissatisfied with the results of the spending cuts package agreement between Congress and the White House reached earlier in the week.

The possibility of a downgrade had been looming since April, when S&P and two other credit agencies — Moody’s Investor Service and Fitch — warned of the possibility of a downgrade if the government failed to cut spending back enough.

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in the press release issued Friday to announce the downgrade.

“More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011,” the agency further said.

For Puerto Rico, the implications of the national downgrade could include more expensive credit for loans and, possibly, government borrowing.

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